Structure, agency and causality in post-revival Austrian economics: tensions and resolutions

Abstract

This paper aims to illustrate the benefits that accrue from critical realism's sustained, explicit reflection about ontological issues. The paper pursues this aim by examining the work of radical subjectivist Austrian economists as it has developed since the post-1974 revival in the fortunes of the Austrian school, focusing in particular on their account of the generation of socio-economic order in decentralized market economies. Ambiguities and tensions can be discerned in the radical subjectivist account of the causal forces at work in the market process. It is argued that the conceptual resources required for resolving those tensions and ambiguities are to be found in critical realism. The final section of the paper draws out some of the broader implications of the suggested resolution for radical subjectivist Austrian economics.

Acknowledgments

I am grateful to Bruce Caldwell and to participants in seminars at Cambridge University and at the 2002 meeting of the Southern Economic Association for comments on an earlier draft of this paper. I would also like to thank the members of the Austrian Economics Colloquium at New York University, particularly Roger Koppl, for helpful conversations about some of the arguments advanced below. Any remaining deficiencies are of course solely my responsibility.

Notes

¹The term ‘ontology’ is used here to refer to the nature of (what exists in) the world, that is the nature of being (Harré, 1988, p. 100; Butchvarov, 1995, p. 489).

²For a valuable account of the post-1974 revival of the Austrian school, see Vaughn (1994, pp. 92–111).

³Prominent contributions to this line of thinking, many of whose authors either are or have been associated with George Mason University, include Ebeling (1986, 1987, 1990), Lavoie (1986, 1987, 1990a,b,c, 1991a,b, 1994a,b), Boettke (1989a,b, 1990b,c, 1998a), Madison (1989, 1990a,b, 1994, 1998), Prychitko (1989–1990, 1994a,b), Horwitz (1992, 1994, 1995, 1998, 2002, 2004), Addleson (1995), Chamlee-Wright (1997), Lavoie & Chamlee-Wright (2000) and Boettke et al. (2004) and the essays collected in Lavoie (1990d) and Prychitko (1995).

⁴The extent to which Lachmann himself succeeded in devising an analysis of socio-economic order that eschews the use of the equilibrium concept whilst simultaneously avoiding nihilism is a contentious issue in contemporary, radical subjectivist Austrian circles. See, for instance, Lavoie (1994b, 1997), Vaughn (1994, pp. 155–161 and 171), and Prychitko (1994a, 1997a,b).

⁵‘The first thing that should be said’, Hayek (1945) wrote apropos the ‘true’, sophisticated version of individualism to which contemporary radical subjectivists subscribe, ‘is that it is primarily a theory of society, an attempt to understand the forces which determine the social life of man. … This fact should by itself be sufficient to refute the silliest of the common misunderstandings: the belief that individualism postulates (or bases its arguments on the assumption of) the existence of isolated or self-contained individuals, instead of starting from men whose whole nature and character is determined by their existence in society’ (p. 6). For more on this point, see Boettke (1989a, 1990b), Prychitko (1989–1990, 1995), Madison (1990a, 1994), Lavoie (1994a), Fleetwood (1996, p. 743) and Caldwell (2001, pp. 548–551).

⁶As Gadamer (1975) put it, ‘Tradition is not simply a precondition; rather, we produce it ourselves inasmuch as we understand, participate in the evolution of the tradition and hence determine it ourselves. Thus the circle of understanding … describes an ontological structural element in understanding’ (p. 293).

⁷This is the so-called genetic–causal approach to economic methodology (Mayer, 1932; Cowan, 1994; Cowan & Rizzo, 1996).

⁸The account that follows is intended to adhere to the ‘principle of charity in interpretation’ advocated by scholars such as Deirdre McCloskey and Ludwig Lachmann, according to whom one should attempt wherever possible to read a text or body of work in a way that imputes coherence to it wherever possible and which yields interpretations that the author(s) would be willing to acknowledge as their own (Lavoie, 1994b, p. 16; Boettke & Sullivan, 1998, p. 163).

⁹Similar comments about social structure ‘influencing’, ‘affecting’ or exerting ‘feedback’ effects on people are to be found in Boettke (1990b, pp. 16 and 19, 1998a, p. 73), Chamlee-Wright (1997, p. 39), Boettke & Prychitko (1998, pp. xiii and xxii), Boettke & Storr (2002, pp. 175, 181 and 187–188n) and Horwitz (2004).

¹⁰While Boettke (1990b, p. 24) described modern radical subjectivists as institutional individualists in the sense of Agassi (1975), recourse to that author's paper sheds little light on the question under investigation here. Although Agassi (1975, p. 154) noted that ‘individuals are affected by social conditions, and in turn affect them’ (p. 154), he did not address the issue of whether this influence is causal in nature.

¹¹As Cowan & Rizzo (1996) commented ‘If there is no change in a system, then ipso facto there can be no causation’ (p. 286). Also see Cowan (1994, pp. 63–64) and O'Driscoll & Rizzo (1996, p. 62). However, and significantly for the argument developed below, the approach to causation adopted here suggests pace Cowan (1994, p. 67) that it is not only the episode that triggers an event (for example, the spark that leads to a fire), but also the conditions necessary for the triggering (such as the presence of oxygen) that count as causes (in a sense to be made more precise below) of that event (Miller, 1987, pp. 60–61).

¹²Additional support for this line of interpretation is provided by the fact that commentators on Gadamer's writings (upon which, as we have seen, post-revival radical subjectivists rely heavily) have understood his notion of ‘effective history’ to mean that interpretive traditions exert a (non-deterministic) causal influence over current activity (Wachterhauser, 2002, p. 61).

¹³This tension has also been alluded to in passing by Mäki (1990b, p. 302) and Addleson (1995, pp. 126–127).

¹⁴Considerations of space preclude a detailed statement of the reasoning by which critical realists justify their preferred socio-economic ontology. Consequently, the following section will tend simply to state the conclusions reached by critical realists, elaborating only on those aspects of the underlying argument that are particularly important for resolving the tensions in radical subjectivism and leaving the interested reader to find a detailed explanation and justification of the critical realist position elsewhere. Archer (1995) discussed the socio-economic ontology sponsored by critical realism at length. Book-length treatments of the project of critical-realism in economics can be found in Lawson (1997, 2003). Fleetwood (1995) used the vantage point provided by critical realism for analysing the evolution of Hayek's work. Shorter accounts that compare and contrast critical realism with Austrian economics include Runde (1993, 2001), Lawson (1994), Fleetwood (1996), Lawson (1999) and Lewis (2005).

¹⁵Critical realists would also argue that, in addition to serving as points of orientation for people's plans, social structures are repositories of power and other resources and are also sites of vested interests (Lewis, 2005).

¹⁶Of course, none of this should be taken to imply that social structures act behind people's backs or that people's actions are completely determined by social structures. While the transformational model of social activity suggests that social structure is causally efficacious, it does not reduce people to the status of mere puppets whose actions are causally determined by social structures. For, as we have seen, critical realists argue that social structures influence the course of socio-economic affairs only by the way they condition people's choice of action, not by acting autonomously (behind people's backs, as it were). Consequently, critical realists can speak of the causal influence that social structures exert on socio-economic events without denying either the mediating role of people's interpretations (and, hence, the necessity of a hermeneutic moment in social science) or the possibility that people may act in a creative fashion and, therefore, without making any deterministic claims about the connection between people's socio-economic circumstances and their conduct. For example, while a foreigner who is in the UK and who wishes to understand and to communicate with other people will have to use the pre-existing rules of English grammar in order to produce intelligible speech acts, those rules do not determine what he or she says or writes. The possibility also remains open that the person in question may be a taciturn character who chooses not to communicate at all. Likewise, an entrepreneur can ignore traditional interpretive schemes in formulating his or her plans, so long as he or she is prepared to accept the consequence that those plans are unlikely to reach fruition. However, if people wish to communicate or to have a realistic chance of carrying out their plans, then they do indeed need to adapt their actions so that they acknowledge the importance of inherited social structures. For more on these issues see Archer (1995, pp. 195–196), Lawson (1997, pp. 34–35 and 200–201), Layder (1997, pp. 201–202), Porpora (1998, pp. 346–347) and Sayer (2000, pp. 17–18).

¹⁷Cowan & Rizzo's (1996) comment that ‘we do not claim that there is only one concept that has legitimate claim to being called “causation” ’ (p. 274n) perhaps indicates that the claim that efficient or genetic causation does not exhaust all the varieties of causation in socio-economic life will not prove to be too uncongenial for Austrians. For more common ground on this issue, compare Cowan & Rizzo (1996, pp. 291–292n) with Lewis (2000, pp. 263–265).

¹⁸See, for example, Hayek (1952, pp. 100–101), Lachmann (1971, pp. 7 and 73–74), Boettke (1989a, p. 76, 1996, p. 35, 1998a, pp. 54–55), Prychitko (1989–1990, p. 10, 1994b, p. 268), Lavoie (1994a, p. 56) and Boettke & Storr (2002, p. 170).

¹⁹Significantly, there is a considerable volume of literature suggesting that Hayek ultimately abandoned methodological individualism and acknowledged the causal–explanatory importance of social structures (Fleetwood, 1995, 1996; Sciabarra, 1995; Caldwell, 2000, 2001).

²⁰Also see Boettke (1989a, p. 78, 1990b, pp. 15–16, 1998a, pp. 69–74, 2001, pp. 240–241 and 253–254), Lavoie & Chamlee-Wright (2000, pp. 53–80), Boettke & Storr (2002, pp. 179 and 181) and Boettke & Subrick (2002).

²¹This has not gone wholly unnoticed by Austrians. For example, in a recent book Koppl (2002) wrote that ‘I use the term “methodological individualism” with some misgivings. It has come to hurt, not help, communication’ (p. 35).